Jerry Brown and the new year

Digby links to a Reuters blog post by James Pethokoukis reporting on one of many Republicans wrecker schemes:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans "have a very firm line on BABS — we are not going to allow them to be included."

I don't have a good feel for how much that would affect California finances and whether this idea is a reality-based scheme or crackpot dreaming.

But I do know that any serious Republican scheme to push California into bankruptcy will put incoming Governor Jerry Brown on the front line of the fiscal battle in Congress new year.

And the Republicans may be surprised to find that Jerry, unlike Obama, doesn't tremble in fear at Republican blackmail and is willing to have a very public fight to get something he consider vital for the state. Based on his seeming collapse on all fronts since the November election, Obama will go along with such a Republican scheme if they are determined to push it. And he won't enjoy having Jerry hold his feet to the political fire either.

Jerry held the first in a planned series of three budget forums today in Sacramento. The official state estimates have California looking at a $25.4 billion deficit for the 2011-12 fiscal year beginning in July 2011. Jerry made a point of saying that his planning is working off a higher estimate of $28.1 billion, the difference being a loss of an additional $2.7 billion in revenue due to how changes in the estate tax announced in Obama's atrocious tax deal with the Republicans on Monday would affect California state revenues. In other words, Obama's deal on Monday increased California's projected shortfall for 2011-12 by 11%. While Obama fights for his tax subsidies for billionaires, the state of California will be cutting back services and likely raising revenues. So the people get less and pay more.

Jerry is doing something I expected, which is to publicize the seriousness of the state budget crisis and lay out what the grim alternatives are. I'm sure that one of his considerations in doing this before he even takes office in January is to drive home the miserable failure of the Schwarzenegger administration and his Republican Wrecker Party in the legislature in dealing with the state budget.

I have to give Schwarzenegger the faint praise of saying that in today's Republican Party, he was a very rare instance of a moderate, i.e., he wasn't as terrible as most of the Republicans in the legislature. But the California Republicans are working from the same wrecker playbook as those in Congress are. They will try to block any half-reasonable solutions to the budget shortfall.

But Jerry Brown isn't going to roll over and play dead for them the way we've seen President Obama do this week. Jerry's a fighter. (By Apollo the far-shooter, I wish he were President. But that's another story.)

There were some notable quotes from the Sacramento forum.

Jerry on the state budget shortfall for 2011-12: "What we're looking at today is much worse than it's ever been before."

State Controller John Chiang: "We see protracted slow growth for California." One chart of the projections being used showed state unemployment not reaching it 2007 levels as the beginning of this depression until 2014.

Legislative Analyst Mac Taylor on the choices of cutting state services and raising taxes, "No matter which way you go, it's not going to be a good effect on the economy."

I haven't seen the national figures on this. But I'm sure the pro-cyclical (anti-stimulative) effects of state cuts next year will mostly offset any stimulative effects of Obama's awful tax deal, if not wipe them out altogether. The billionaires' subsidy will have virtually no stimulative effect. That same amount of money provided to the states to minimize cuts would basically have a stimulative effect for every dollar provided.